Steam enables Valve’s gamers to trade freely with one another, effectively to establish a substantial economy in which thousands of items, also imaginable as assets, are exchanged for one another. This is a typical barter economy, in that every exchange necessitates a double coincidence of wants (i.e. when Jack offers Jill some Team Fortress 2 hat in exchange for a couple of keys, the trade will go ahead if, at the same time, Jill also prefers that particular hat to her two keys).

Barter economies are cumbersome precisely because they require this double coincidence of wants before any bilateral trade proceeds. For this reason, throughout history, whenever the number of transactions (and ‘assets’) grew in number, one of those assets soon emerged as a numéraire – a basic form of money that is. Once the numéraire acquired currency, suddenly the prerequisite of some double coincidence of wants vanished and people could trade anything for the numéraire–asset which they could then use in order to buy whatever else tickled their fancy. In short, as economies grew in sophistication, they ‘monetised’ and ceased functioning on the basis of barter. This is why never in history have we witnessed truly sophisticated barter economies (for reasons similar to why we have not developed hugely sophisticated training wheels for professional cyclists).

Initially, I had expected that a similar pattern would be replicated in digital economies, like Valve’s. I was expecting to find that some item or asset would emerge as currency in the context of games such as Team Fortress 2. However, a close study of our Team Fortress 2 economy revealed a more complex picture; one in which barter still prevails even though the volume of trading is skyrocketing and the sophistication of the participants’ economic behavior is progressing in leaps and bounds.

So what gives? Why has no money emerged? Why is this virtual economy not behaving like every economy there ever was in the real world? In particular, how would an Austrian explain this?

First of all, every single item in that universe has intrinsic [=non trade] value, because each of them is obviously of some value to someone in the game. The laser guns and keys are clearly useful, and I imagine the hats are at least useful as decorations.

Thus they all seem to satisfy the regression theorem. Why have none of them even become a medium of exchange, much less money? I would think the cheapest one, which looks to be hats based on the article, would be a very promising candidate. And yet, nobody has stepped up and become the money. Why not?

To me, the answer is obvious. Although there is some demand for everything, there is no wide demand for any individual product. And to become money, based on the reasoning of the regression theorem, an object has to be in wide demand.

Not all hats are the same. This doesn't prevent them from being used in indirect exchange, as tobacco has been used as money in the past despite varying qualities, but it could mean that there aren't enough hats yet. Also, I would hardly call the Valve item economy to be sophisticated to the same degree as a real economy. Also, all of these items are luxury goods and, furthermore, any time spent trading is time spent not playing a game, and trades take time.

Throughout history, men have worn hats as a way of showing how much better they are than other men. “I buy hats,” a behatted man seems to say. “I am better than you.”

In wartime, hats were a useful way of conferring rank, and ensuring that casualties were confined to the lower classes (hence the famous command of “Don't fire till you see the tops of their heads” at the Battle of Bunker Hill by William Prescott, a general renowned for only shooting enemy combatants who were poor). During peacetime, hats have been instrumental for men to let the non-hatted know just who is wearing the hat around here.

Trivia

On the History page on the official website and the Mac Update page, Valve refers to Team Fortress 2 as "America's #1 war-themed hat simulator", based on comments that the hats receive more attention than the gameplay itself

"Inflation has been used to pay for all wars and empires as far back as ancient Rome… Inflationism and corporatism… prompt scapegoating: blaming foreigners, illegal immigrants, ethnic minorities, and too often freedom itself"
End the Fed P.134Ron Paul

1) Any amount of money may suffice, but not any amount of gold. Too little and it it too valuable to trade for indirect exchange; too much and it is not valuable enough to trade for indirect exchange.

2) In a real barter economy, people have to trade in order to survive and, if possible, to satisfy their desires for luxury goods and services. You don't need to participate in the Valve barter economy to survive in the real world or in the virtual. It may be sophisticated in the sense that a lot of people trade for a lot of things, but not all people within it trade nor do they necessarily trade with regularity.

3) My point about these all being luxury goods is that nobody has to trade for them in order to to play the game. So you don't need to acquire a good for indirect exchange if you don't want to participate in the item economy. This is unlike the real world, as you have to either do everything yourself or participate in social cooperation. There is no third option of choosing to not do anything, unless you are choosing death. But you can choose to not participate in the item economy without negative consequences.

4) In the real world, you do everything yourself or participate in social cooperation. In the virtual world, if you just want to play the game, then you can ignore the economy. Not everyone has the time to participate in trades, nor does everyone care to. Some people just want to play the game, or participate minimally in the item economy.

Many of the people making comments say that goods in the game are often priced in terms of refined metal

"Inflation has been used to pay for all wars and empires as far back as ancient Rome… Inflationism and corporatism… prompt scapegoating: blaming foreigners, illegal immigrants, ethnic minorities, and too often freedom itself"
End the Fed P.134Ron Paul

well that would make sense if 100 hats were evenly divisible. but the hats arent fungible either, so a conglomeration of hats is necessarily heterogenous which would seem to preclude it becoming money.

Here are some thoughts which might be worthless, given my lack of knowledge in the field:

1) The point of hats is that they are "cool" to wear. If everyone suddenly got one type of hat, it wouldn't be cool any more. Furthermore, styles and trends come and go. Maybe the styles and trends change rapidly enough that it's pointless to keep a stock of one specific hat, because you know there will not be demand for it in the future.

2) Given that money emerges to decrease transaction costs, we might deduce that transaction costs are not high enough in-game. After all, you have lightning-fast access to many, many players in the world. Therefore, finding the person to trade with might be easy enough as it is.

Go through the article comments and type "refined metall". Here is one comment and many others say something similar. People also use keys and earbuds for money

as a player i’ve seen scrap, reclaimed, and refined metal act more as our currency more than anything. when people talk, on servers about buy or selling item the price is usually is translated into an amount of metal. like keys having a selling price of 2.66 (2 refined and 2 reclaimed worth of metal), although keys can be bought with actual money, scrap metal and the likes is not something you cannot buy in the store.

One person said that this is particularly at the high levels of trading. Proably things start getting so complicated they need to use something like metal as indirect exchange. The less serious players can probably depend more on a double coincidence of wants. This probably does show that a more sophisticated economy needs indirect exchange

Here is another comment somone else says that items are often given a bare number in price and it is assumed that the number is refined metal. So the people clearly see refined metal as money

This is so common that item prices are often given as a bare number, with the unit assumed to be refined metal. So what makes it an unreliable currency for the purpose of analysis?

"Inflation has been used to pay for all wars and empires as far back as ancient Rome… Inflationism and corporatism… prompt scapegoating: blaming foreigners, illegal immigrants, ethnic minorities, and too often freedom itself"
End the Fed P.134Ron Paul

I've never played this game before but I'm sure refined metal is useful it is probably used in crafting other in game items. In the comments section of the article Brendon says that scrap, reclaimed and refined metal are used as currency more than anything else. Scrap and reclaimed are used as fractions of refined. This is how they work out divisability

like keys having a selling price of 2.66 (2 refined and 2 reclaimed worth of metal)

In games like World of Warcraft platinum, gold, silver and copper coins have use value to players because NPC (non player character) merchants accept coins for goods. For example if you need to repair your armor you have to pay coins to an NPC and this makes the coins valuable to players. In fact the developers use this as a way to prevent inflation because all coins that go to an NPC basically cease to exist. If it wern't for the need to repair armor there would be a lot more inflation

"Inflation has been used to pay for all wars and empires as far back as ancient Rome… Inflationism and corporatism… prompt scapegoating: blaming foreigners, illegal immigrants, ethnic minorities, and too often freedom itself"
End the Fed P.134Ron Paul

Commenter "marcadia" hit on the key issue: liquidity. The Austrian theory of money puts the emergence of a medium of exchange down to "marketability" - the medium of exchange emerges from among the most marketable goods, that is, the most liquid goods. What makes something liquid is how quickly it can be traded away without a substantial loss in selling price. For example, real estate is on the "very illiquid" end of the spectrum... you can find a buyer for your gingerbread cottage over in slum central within 48 hours... the question is whether you'll be able to get more than $10 for it. Back to the question of a "virtual" medium of exchange emerging in the absence of an in-game virtual currency, we see that the necessary condition for such a medium to emerge is a substantial variability in the marketability of in-game goods. Some goods must be more more marketable/liquid than other goods. These goods that can be quickly and easily traded away with no significant loss in selling price are candidates to be a de facto, in-game currency. If, on the other hand, all goods are roughly equally marketable, then there is no motivation for a money to emerge... you will have to wait the same amount of time to exchange away good A at a reasonable selling price as to exchange away good B at a reasonable selling price. This is why Hoppe always starts his derivation of monetary theory from the existence of variation in the wants of individuals and the natural resources available to those individuals. Without this variation, money would not emerge.

The Regression theorem is a memetic equivalent of the Theory of Evolution. To say that the former precludes the free emergence of fiat currencies makes no more sense that to hold that the latter precludes the natural emergence of multicellular organisms.